Leadership Revolution

Xero employs a flat, non-traditional leadership structure that would work well for any Kiwi company wanting to go global, says chief executive Rod Drury.

New Zealand companies going global would benefit from a flat management structure, like the one we have at Xero. Let me explain.

Traditional global companies are often US-centric and have a ‘command and control’ style of management.

Typically, they have a board and senior management solely from the US, with a head of international business and then, below that, country managing directors. That’s what you see at big US technology companies, such as Uber, Microsoft, Salesforce, and Amazon.

For us at Xero, a big challenge of building a global company from New Zealand is hiring top managers. We need executives who are senior and have a track record of being able to drive scale.

But, to win a market like the US, how do you attract people who aren’t going to be two levels down in the organisation, reporting to some tiny country in the Pacific?

As we looked at this issue, we saw a couple of big dilemmas. How did we hire a really senior US leadership team, and have them directly report to me as global CEO, without having 20 people reporting directly to me?

It became clear that we needed a matrix structure, so we combined several things that we liked. We defined our matrix so we had our global C-suite and our country leaders on a grid. Then we used a principle called ‘servant leadership’.

The leader as servant

We defined the services that each staff member was providing to each other person along the matrix and asked, what are the services you provide to others and receive from others?

For example, the CFO provides the money that the countries need to operate, but the business needs to commit to the business planning process, work within agreed budgets, and report back, with monthly management reporting and then formal quarterly business reviews.

Another example might be that a chief product officer provides competitive products for that market, but the country needs to prioritise its specific requirements clearly and monitor competitors closely.

So, each pairing is two-way servant-leader relationship within the matrix. My job is to identify any gaps in that matrix and balance the portfolios.

We show this leadership matrix as a circle. There are two halves, with the C-level team on one side and the country leaders on the other. Then we look at the interactions between all of these people.

Centres of excellence

Another key principle of truly trans-cultural corporations is being ‘polycentric’. This means that any part of the business can be the centre of excellence for the world.

If you think that one country is better at a task, that country can take the lead globally. For example, we have an amazing payroll team in Canberra. We will look to give them more and more responsibility.

I think working this way gives us a true competitive advantage. Xero has a truly global board, with representation across our key markets. We have a talented and diverse leadership team, and we all operate together. For example, we recently had two days in Wellington with everyone in the circle – the country managers and the global management – all in a room together.

The key to managing people is building a complementary team. The common quality of the people we hire is that they all have a high EQ (emotional quotient) and IQ (intelligence quotient). That allows us to quickly cover ground and not have to go back and relitigate decisions.

These are people who just ‘get it’. They’re people that you can say something to, and very quickly they’re playing it back to you, and making ideas better as they add their perspective.

Get the hard stuff on the table

I like to take the big issues and put them on the table, because that’s the hard stuff, and best to tackle when we have valuable face-to-face time.

It could be people’s personal aspirations, or other areas where you recognise there’s conflict coming. I try to get those hard conversations out in the open because, when you have precious time together, you should deal with the stuff that’s hard, rather than just ticking the boxes.

It’s quite cathartic to be this open, and it reduces tension. It’s natural for me get all the issues out and on the table, but the feedback I get is that it’s rare to see someone who is so open.

Three years ago, we crossed NZ$100 million annualised committed monthly revenue (ACMR), and now we’re doing that every quarter.

Of course, growth puts huge challenges on people in an organisation. One of the techniques we use to prepare for that is to always hire up. Don’t fill the team and then put the manager in place: put the leader in place and let them hire their team.

We also make sure that everyone has a succession plan. They’re simple questions: if you get run over by a bus, who’s your replacement? Or, if you can’t speak at a conference tomorrow because your child is ill, who’ll speak on your behalf?

These are such revealing questions. Often, we find that the best leaders have their succession sorted because they’re not threatened by it, and they coach people. These individuals are really building sustainable teams and capability.

As Xero gets bigger, our leaders are moving from active doers to people who can lead and coach smart people.

Speed and agility

There’s been a lot said recently about Xero in New Zealand. Our head office is in Wellington but, really, what is a head office?

Our management team is completely global. We operate from anywhere. I don’t actually have an office in Wellington. I just walk around, find a hot desk, or work in the café. The whole idea of a head office with a head-office function is almost funny for companies like ours, because everybody’s everywhere.

I’m often at home in Hawke’s Bay, riding my bike or swimming when I can, because we work hard, we travel often, and we’ve got to balance that with our family life. I have all the tools I need to work anywhere I like.

Other global companies have been slow to decentralise, which is good for us, because we’re disrupting the market.

When you look at traditional companies, we’re beating many of them around the world. The proof’s in the numbers that show how quickly we’ve been able to not just win, but also defend Xero, against rivals with much bigger budgets.

If you’re interested in overhauling your company’s leadership, I’d suggest you read a book by the smartest person on this subject I’ve ever met, Fons Trompenaars. In Transcultural Corporations, you can learn more about servant leadership.

First published Autumn 2018

The editorial above reflects the views of the editorial contributor only and content may be out of date. This article is sourced from a previous JUNO issue. JUNO’s content comes from sources that it considers accurate, but we do not guarantee that the content is accurate. Charts are visually indicative only. JUNO does not contain financial advice as defined by the Financial Advisers Act 2008. Consult a suitably qualified financial adviser before making investment decisions.

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